wasted income - ifc

Wasted IncomeIndustrial waste:

from disposal to prevention

In partnership with

The International Finance Corporation (IFC) is the largest multilateral financial institution investing globally in private

companies operating in the developing world. Established over 50 years ago, IFC is a member of the World Bank Group

and focuses on promotion of economic growth, poverty reduction, and improvement of people’s lives in developing

countries. We invest in private projects that generate economic and social benefits in the nations, as well as profits for our

investment partners.

This material was prepared by IFC in 2013.

The opinions and conclusions contained in this material do not necessarily reflect the opinions of IFC, the Board of

Directors of the World Bank or its Executive Directors. IFC does not guarantee the accuracy of the published data and

bears no responsibility whatsoever for any consequences of using these data.

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Contacts:

International Finance Corporation

36/1 Bolshaya Molchanovka Street

Moscow 121069

Telephone: +7 495 411 7555

Fax: +7 495 411 7556

www.ifc.org/rcpp

WASTED INCOME

Industrial waste: from disposal to prevention

Russia generates 4 to 5 billion tons of waste annually, most of which is industrial waste. The intensity of its

generation is much higher than in Europe: the manufacturing industry delivers five times more waste per $1 of

added value.

Greater amounts spur up companies’ direct and hidden costs (on disposal and due to the loss of material and

other resources). Lowering these costs requires making resource use more efficient and adjusting the waste

management scheme, including recycling.

Company managers and owners may underestimate the real costs associated with industrial waste.

You will learn from this booklet:

Why actual costs may be 10 times higher

than expected;

How to assess the real costs associated with waste;

What is more profitable: recycling or prevention;

How implementation of resource-efficient technolo-

gies saves millions of rubles even in low-waste

productions.

The IFC resource efficiency specialists estimated the real costs in waste management for small and medium-sized

companies from machine building, construction materials, and food industries.

The analysis revealed:

Companies may underestimate costs associated with waste, while the latter can amount to millions of rubles

a year even for small businesses.

With all costs factored in, waste prevention may bring several times more profit to the company than the

revenue from recycling. This is true even in the cases when waste is highly demanded on the market of

secondary raw materials (scrap metal).

Accounting for the full costs of waste encourages companies for more pro-active use of technologies that

reduce costs and cushion an environmental impact.

The benefits of waste prevention can be accounted as an additional cash flow in the analysis of benefits and

costs for equipment modernization projects.

Why is it important to prevent generation of waste?

How does cost accounting contribute to that?

1

2

3

In Russia, the manufacturing industry

generates 5.5 times more waste than

the European average

Russia

0.2

0.1

EU-27

Germany(kg/$)

1.15.5

times

Waste intensity in the extractive industry

is 1.5 times higher than the European average

Russia

10.4

5.5

EU-27

Germany(kg/$)

16

1

1.5times

WHAT IS THE REAL COST OF WASTE FOR THE COMPANY?

SAMPLE ESTIMATION OF THE REAL LOSSES FROM WASTE OVER ONE YEAR

Direct costs

waste disposal

Tip of the iceberg Perceived costs

Reported costs

of basic materials

Extra costs

of basic materials

HIDDEN PART OF THE ICEBERG

Direct costs of waste disposal and environmental fees are

visible to any manager or owner. Yet there is also a hidden

component.

This includes labor, material, power, and other resources

spent on something that will eventually be wasted.

Some losses of basic materials are often accounted under

defective products, but the costs of their recycling are not.

As a result, the expected value of waste is only the tip of

the iceberg, and the full costs of waste management turn

out to be much higher than expected.

How to identify the real cost of

waste and assess its impact on

competitiveness.

How to compare the

cost-effectiveness of various waste

management strategies: recycling,

disposal, and prevention.

How the cost of waste is

accounted for in production and

managerial decision-making.

A full assessment of the costs requires considering all

aspects of waste.

A detailed cost analysis allows identifying when it is

more beneficial to prevent waste generation, transfer

for recycling, or dispose of.

These findings may suggest a system of waste

management with potential cost savings on recycling. This

would greatly contribute to the company’s

competitiveness.

LEARN FROM REAL-LIFE CASES OF OTHER COMPANIES

5million RUB

15million RUB

20million RUB

Bottom of the iceberg Hidden costs50

million RUB

30million RUB

20million RUB

Other costs of resources

Total: 70 million RUB

2

Cost of paper

Cost of scrap paper

Cost of paper

2,000RUB/ton

29,000RUB/ton

29,000RUB/ton

Estimated annual gains and losses

Benefit per ton of

products,

RUB:

Prevention

73

Recycling

10,880

For medium-sized businesses, it is more profitable

to prevent generation of waste than recycle it

The case of printing and publishing works

Products: newspapers, leaflets, and brochures.

Regional market operator (Rostov oblast, Northern Caucasus).

70 workers in two shifts.

Modern production technology and equipment.

Turnover in excess of 2,730 tons of printed products annually.

Basic materials: paper and paint.

Other costs: power, gas, payroll, and depreciation.

Company brief:

PAPER STANDS FOR MONEY

1

3

The real costs are nearly ninefold higher than perceived. Prevention

of waste is 149 times more efficient than the sales of scrap paper.

Cost of paper

29,000RUB/ton

Energy wastageWastage of other

materials/resources

Accounted costs

of basic materials3.5

million RUB

Unaccounted

costs of basic

materials

20.3

million RUB

Costs of other

resources6.1

million RUB

Ink wastage

3millionRUB

0.3millionRUB

2.8millionRUB

Income from

sale of paper waste0.2

million RUB

2,730tons

120tons

Total volume

of paper used

4.4%

25.6%

700*tons

Unaccounted

losses of paper

Paint, power,

and other resources

Accounted losses

of paper

3.3million RUB

Perceived

costs

29.7million RUB

Real costs

3.3million RUB

Accounted costs

26.4million RUB

Unaccounted

costs

Otherlosses

*The figure was calculated as a difference of

actual paper consumption and the production

volume, and results from present operational

control practice of the paper stock.

The only significant source of waste is the return of finished products.

The volume of rejects is approximately 45 tons per year (0.8% of the output).

Benefit per ton

of products,

RUB:

Prevention

0

Recycling

65

Waste prevention is beneficial even

for a low-waste production

The case of a bakery plant

Products: bakery products.


130 workers in three shifts.

Modern production technology.

Turnover in excess of 5,200 tons annually, more than 120 million RUB.

Low-waste production.

Basic resources: flour (33.6 million RUB per annum).

Other costs: power, gas (4.7 million RUB per annum), payroll, and depreciation.

GAINS OUT OF FOOD WASTE

270thousand

RUB

Perceived costs

340thousand

RUB

Real costs

2

4

Accounted losses

of basic materials270

thousand RUB

Losses of

other resources70

thousand RUB

Estimated annual losses

Company brief:

The recycling of waste brings no gain, while prevention of rejects

would allow for a revenue of 65 RUB per ton of products.

10,000RUB/ton

Total volume

of flour used

3,375tons

0.8%

27tons

Accounted

losses of flour

Losses of power

and other resources

Average cost of flour

Costof power

Cost ofother resources

33thousand

RUB37

thousandRUB

270thousand

RUB

Accounted costs

70thousand

RUB

Unaccounted costs

Other losses

Prevention is more beneficial than recycling,

even if secondary materials are of high value

The case of a boiler manufacturer

Products: household appliances (gas boilers).


350 workers.


Turnover of about 6,000 tons of heating appliances.

Large losses of thermal energy in the technological process.

Basic resources: steel (4000 tons per year, 108 million RUB) and paint.

Other costs: power (17 million RUB), payroll, and depreciation.

PREVENTION BEATS RECYCLING

3

Income fromscrap metal sold1.5

million RUBCosts of collectionof production wasteand haulage

Metal cuts7.3

million RUB

Paint residues (up to 10% of paint is lost)

1.1

million RUB

Associated costs

of other resources 2.1

million RUB

6.0million RUB

Perceived costs

9.2million RUB

Real costs

Benefit per ton

of products,

RUB:

Prevention

216

Recycling

1,533

Estimated annual gains and losses

5

Company brief:

Prevention of waste is seven times more efficient

that its recycling.

6.8%

270tons

Accounted

losses of steel

Losses of power

and other resources

5,600RUB /ton

27,000RUB /ton

Cost of scrap metal

6.0million RUB

Accounted

costs

3.2million RUB

Unaccounted

costs

0.2

million RUB

Total volume

of steel used

4,000tons

Otherlosses

Waste prevention brings extra profit even

at a low-waste production

The case of a brick factory


200 workers.


Turnover in excess of 1 million tons of brick products.

Simple technological process.

Basic resources: clay (1 million tons of clay with a total cost of 40 million RUB).

Other costs: gas (6.6 million m3 per annum at 28 million RUB), payroll, and depreciation.

NOT A FRAGMENT WASTED

4

Collection

and haulage costs0.1

million RUB

Accounted

cost of clay0.6

million RUB

Major losses are associated with scrap brick in production or packaging (1.5% of the output).

Associated costs

of other resources0.5

million RUB

0.7million RUB

Perceived costs

1.2million RUB

Real costs

Estimated annual losses

6

Company brief:

7tons

Volume of other

waste collected

Losses of gas

and other resources

1,5%

0.7million RUB Accounted costs

0.5million RUB

Unaccounted costs

Total volume

of clay used

One million tons

15thousand

ton

Scrap brick

40RUB/ton

cost of materials

Otherlosses

Gain,

million RUB:

Prevention

0

Current situationpreserved

1.2

Total costs are almost double those anticipated

For notes

The IFC Resource Efficiency Program has been implemented in Russia, Ukraine, and Europe and Central Asia

countries since 2008.

The Program seeks to expand access to targeted financing of resource-efficient modernization for real-economy

companies and utilities with an objective of improving economic and environmental performance indicators.

Priority sectors and areas:

• Machine building and foundry engineering,

• Chemical industry,

• Agriculture,

• Municipal and housing economy,

• Common resource-efficient industrial technologies.

The Program facilitates companies in assessment of possible savings on energy and other resources, and also

reduction of waste. This allows businesses to identify and unlock potential resource savings, cut costs,

and advance competitiveness.

36/1 Bolshaya Molchanovka Street

Moscow 121069

T: +7 495 411 7555

F: +7 495 411 7556

ifc.org/rcpp

2015

With the support of the Austrian Ministry of Finance,

the Free State of Saxony (Germany), the Finnish Ministry

of Employment and Economy and the Agency for International

Business Cooperation within the Dutch Ministry of Economic Affairs.

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